The Predicted Job Collapse Is Now In Progress

By Jack Rasmus
July 8, 2011

COMMENTARY: Last April this writer wrote a blog piece entitled, ‘Why the March-April Jobs Numbers Will Collapse This Summer. In it, an in-depth analysis was made of a serious problem in the Labor Department’s methods for estimating jobs in the spring quarter every year. (see that piece below this blog). Today’s dismal job numbers for June showing only 18,000 jobs created and hundreds of thousands of jobs lost in the public sector, confirms my prior analysis and prediction. More worrisome, there is no light at the end of the job tunnel whatsoever. Meanwhile, Obama and the Republicans move closer to cut a deal on deficit spending that will gouge social security, medicare, medicaid and education in the US while tinkering with raising taxes on corporations. What we are witnessing as part of the deficit discussions is another repeat of the ‘corporate tax loopholes vs. corporate tax rate’ shell game. Token increases in corporate tax from loophole closing will be followed, this writer predicts, by a reduction in the corporate tax rate from current 35% to 20%. Let’s see if that prediction proves correct as well.

The Predicted Job Collapse Now In Progress
By Jack Rasmus, copyright July 2011

While politicians and business press pundits last March-April were proclaiming the jobs crisis was over, this writer predicted that March-Aprils Job Gains Will Collapse This Summer (May 22, Truthout). That prediction is now underway with the latest June jobs numbers from the US Department of Labor reported today, July 8, showing only 18,000 new hires occurring in June. The preceding May jobs report showed an almost as dismal 54,000 jobs created. Thus, this writers May 22 predicted summer 2011 jobs collapse is well under way.

The predicted summer 2011 jobs collapse was based upon an analysis showing that for the last four years every spring quarter, April-June, job numbers are distorted and inflated as a result of certain statistical methods employed by the Labor Departments Bureau of Labor Statistics that artificially boost second quarter job numbers. The cause of the distortion and artificial boost in jobs involves what is called the New Business Birth-Death model. The updated Table 1 from May that follows shows how second quarter numbers are once again typically inflated this year, as in previous years. The May and June jobs reports showing a dramatic decline in job creation in turn strongly suggests a coming jobs relapse this summer and third quarter

TABLE 1
Employment Gains/Losses First Through Third Quarters 2007-2011 (in thousands of jobs created per quarter)
U.S. Bureau of Labor Statistics, CES Database

Years Quarter 1 Quarter 2 Quarter 3

(Jan.-March) (April-June) (July-Sept.)

2007 -2,310 +2,620 -643

2008 -2,033 +1,636 -1,427

2009 -4,122 +663 -1,092

2010 -1,677 +2,517 -174

2011 -2,385 +2,173 TBD

Since 2008, the first quarter of the year has shown a significant loss of jobs. Every second, or spring quarter, a falsely inflated job growth is then reported. That inflated reporting does not continue in the summer and third quarter. Over the summer months job creation declines.

The longer term trend behind the annual spring-summer inflation then decline in jobs is a continuing stagnation in terms of job creation that has been going on for at least the past three years. As the economy enters the summer 2011, it is now in effect entering a triple dip in the jobs market–having already experienced a second, or double dip, last summer in 2010 when a net 600,000 additional jobs were lost.

The fundamental reason for three years of job stagnation is not statistical. The statistical problem only falsely obscures the long run job stagnation in the spring, which then reappears in the summer once again.

The fundamental reasons for the Obama job stagnation is the administrations total reliance on the private sector to create jobs and its corresponding refusal in turn to engage in any program of direct government job creation.

As has been pointed out many times by this writer and others, big business America today sit on record $2 trillion in cash and refuse to invest and create jobs in the US. The picture, unfortunately, is not much different concerning job creation for small business, but for different reasons.

Small businesses typically create about half the jobs in the US. But small businesses rely on bank loans for expansion, whereas big businesses finance investment out of issuing corporate bonds or from internal cash (i.e. the $2 trillion hoard on hand). Small businesses aren’t sitting on $2 trillion in cash. In fact, most have been struggling along with workers and consumer households in general. Small business is unable to invest today and create jobs because it is dependent on bank commercial and industrial loans to finance investment and job creation. And the problem is big banks have been reducing lending to small businesses for almost every month since 2009.

As recently reported in a survey by the National Federation of Independent Business (NFIB), a small business trade group, more small business plan to reduce their hiring than say they want to expand them. The NFIBs May report showed the worst hiring plans in eight months, trending down since last year and now turning negative–meaning more layoffs planned than hiring. A recent separate small business survey and report by US Bancorp reveals 78% of small businesses still think the US economy is in a recession and expect it to continue for another year.

In short, neither big business is investing at sufficient levels to increase hiring, nor are banks lending to small businesses to expand and hire. And there is no indication either of these conditions are about to significantly change. The only alternative is for the government to introduce direct government job creation programs.

But government is one of the areas where job cutting has been the strongest in recent months. As the June job reports shows, last month government employers cut 464,000 jobs. Those cuts came at all levels of government. States cut 266,000 jobs. Local governments cut 203,000. And all this before the real budget cutting comes in federal and state governments this coming fall.

Of course, given the total preoccupation of Republicans and Democrats with deficit and debt cutting today, there is little evidence of any interest in government direct job creation programs. So the jobs picture will continue at best to stagnate, and more likely will result in significant more joblessness as government at all levels continue to cut spending. It is not unlikely that as many as 500,000 state-local government workers, and perhaps as many federal government workers, will lose jobs this coming 2011-12 year. That’s a million more net unemployed.

Add that fact to the already loss of nearly 700,000 government jobs over the past year, June 2010 to June 2011. And to the related fact that the private sector over the past has been able to create only a feeble 1,171,000 total jobs–a rate of around 95,000 jobs a month which is about 50,000 less than needed to absorb new entrants into the work force.

The deficit-debt debates now totally preoccupying both parties in Washington not only mean there will be no new stimulus. They mean even the insufficient and ill-composed and poorly targeted stimulus of 2009-11 will be reversed. We are entering an era of negative stimulus.

The Obama-Republican deficit cutting deal now underway will shock people when they see its true dimensions. For every tax dollar raised there will be $3 dollars in spending cuts, mostly targeting social security, medicare, Medicaid, and government aid to education. It appears, according to some reports in the business press, that Vice-President Biden and the Republicans are already agreed on the magnitude of the spending cuts. Whats at issue is only how much (little?) will tax loopholes be closed to raise revenue.

But this is the same old tax rate-tax loophole shell game that’s been going on since the 1980s. Some loopholes will be closed, raising a little revenue, but once the smoke clears on the budget deal the tax code will be revised and the top corporate tax rate will be reduced from the current 35% top rate to 20%, this writer predicts. So a $dollar in tax revenue will be raised and $2 in revenue given back to Corporate America. This political shell game over the past 30 years has resulted in a reduction in the corporate income tax share of total federal revenues from around 20% to today’s average of 10% or less.

Meanwhile, the still bigger reductions in government jobs about to occur will be matched, its beginning to appear, by reductions in private sector job creation as well. U.S. consumer spending by the bottom 90% income households in the US is clearly slowing. Global trade and thus US exports are beginning to level off as China, Brazil and other emerging market economies that were the driving source of trade, and thus US exports, have all taken action to dramatically slow their economies by at least half. Japan, Australia and a good part of the European Union are already in, or heading for recession again. All these developments will result in a slowing of US manufacturing and job creation in that sector. In short, there is no light at the end of the economic growth tunnel for renewed economic growth or significant job creation from the private sector in the U.S. And this comes at a time when the public sector is accelerating its withdrawal from the economy due to its myopic and erroneous preoccupation with deficit cutting.